Top court upholds Hydro-Quebec deal to buy cheap energy from Newfoundland and Labrador

The Supreme Court of Canada will not force Hydro-Québec to renegotiate a 65-year contract to buy low-cost electricity from the Churchill Falls power station in Labrador.

The decision means Quebec’s power utility will continue to reap enormous profits from the Churchill Falls deal. But it’s a blow for Newfoundland and Labrador, which has seen a small fraction of the benefits from the project.

The price of electricity dramatically increased after the agreement was signed in 1969 but Hydro-Québec has refused to alter the terms of the contract to account for the changed market.

The Churchill Falls Corporation took the utility to court in 2010 to force a renegotiation, arguing that Quebec’s Civil Code meant that both parties had to treat each other in “good faith.”

In the decision released Friday, the Supreme Court upheld two lower court decisions in favor of Hydro-Québec, with seven justices in agreement and only one, Justice Malcolm Rowe, a Newfoundland native, dissenting.

The court said Hydro-Québec had no legal obligation to renegotiate the deal.

“The duty of good faith does not negate a party’s right to rely on the words of the contract unless insistence on the right constitutes unreasonable conduct in the circumstances.”

The court rejected Churchill Falls Corporation’s claim that the original contract was akin to a joint venture, with both sides sharing the risks and rewards. And the court found there was nothing implicit in the contract to suggest it would be renegotiated if the market changed.

But Justice Rowe said the contract set out a long-term relationship between the power project and the hydro utility.

“Rather than define the parties’ obligations in rigid detail, it assumes the other parties would work together to fulfill the aims of the contractual relationship,” he wrote.

“Hydro-Québec has breached this duty by refusing to establish by way of mutual agreement a price adjustment formula for these extraordinary profits.”

Under the original deal, Hydro-Québec agreed to buy most of the electricity produced at fixed prices for 65 years and, in return, took on much of the risk by agreeing to cover construction cost overruns. It also took the risk that electricity prices could fall.

Quebec consumers will continue to benefit from the lower electricity costs from Churchill Falls until 2041, when the deal expires.

The power station, part of Newfoundland and Labrador Hydro, is now worth an estimated $20 billion.